More Layoffs or Worker Furloughs Coming to Alcoa

Alcoa Inc. (NYSE: AA) remains pressured to build up its earnings in a very difficult environment. Now the company has announced that it will "review 460,000 metric tons of smelting capacity over the next 15 months for possible curtailment to maintain the company's competitiveness." While the words "layoffs" and "furloughs" were not specifically stated, it does not take a genius to understand that reducing capacity includes sending some workers home temporarily or permanently.

The first thing that Alcoa noted is that aluminum prices have fallen more than 33% from their peak in 2011. Facilities across the entire Alcoa system will be reviewed, but the focus will be on higher-cost plants and plants that have long-term risk due to factors such as energy costs or regulatory uncertainty. What the company is warning (or projecting) is that curtailments could affect as much as 11% of Alcoa's global smelting capacity. That is on top of what is already 13%, or 568,000 metric tons, of smelting capacity idle as of now.

Alcoa said that it will consider a wide variety of alternative actions, like discontinuing pot relining to full plant curtailments or permanent shutdowns. The company also said that its alumina refining system will be reviewed to reflect any curtailments in smelting, as well as prevailing market conditions.

Alcoa has reconfirmed that a review of its primary metals operations is consistent with its internal 2015 goal of lowering its position on the world aluminum production cost curve by 10 percentage points and the alumina cost curve by 7 percentage points. Unfortunately, that means more furloughs or layoffs are likely coming down the pipe.

Chris Ayers, President of Alcoa's Global Primary Products, said, "Because of persistent weakness in global aluminum prices, we need to review every option to maintain Alcoa's competitiveness. Any action taken will only be done after a thorough strategic review and consultations with stakeholders."

Shares of Alcoa stock are trading down 2%, at $8.33 so far this Wednesday, against a 52-week range of $7.90 to $9.93. Wall Street often rewards layoffs with a higher share price. Unfortunately, at some point an industry cannot keep scrapping and cutting its way to prosperity.

Alcoa remains one of the worst Dow Jones Industrial Average stocks of 2013 and shares are down almost 4% so far in 2013. For comparison, the DJIA is up about 13% so far this year.